6 February 2007

Uganda: Bujagali Faces 7-Month Delay Over Bids

Nairobi — Uganda's crippling energy crisis is expected to continue for at least another half-year, following reports that the construction of the new 250-megawatt hydropower dam at Bujagali, will delay by seven months.

Sources familiar with the project - which is at the heart of major efforts to end the power shortage - say the delay is due to a failure to complete bidding for the dam.

Negotiations with various parties, including financiers is also said to be behind schedule.

This means that the construction of the dam, to be built on River Nile and which was expected to join the national grid by January 2010, will start at the end of the year, if there are no further hiccups.

Original plans for meeting the country's electricity needs specified that bidding for the Dam and the power plan EPC should be concluded in June 2006 to allow the completion of the financial evaluation.

Financial closure for the project was supposed to be achieved in October 2006, with construction starting last December.

According to information made available to The EastAfrican, a revised project plan will now be sent to the financier - the World Bank - later this year with financial closure expected in July.

Negotiations with various parties including financiers are not concluded," said James Banaabe, the acting Commissioner for Energy. "The project has to go to the World Bank board first for approval in April 2007 and hopefully have financial closure in July. That is the main reason for not taking off."

Sources within the Industrial Promotion Services Ltd (IPS) - the company that is in charge of developing the project - told The EastAfrican that construction of the dam is expected to start in May.

"We are hoping to come to a financial closure by May, though the original plan is for July," the official, who spoke on condition of anonymity, said. "The project EPC evaluation was done and we are in negotiations with the preferred constructor."

The official said that most of the money needed to fund the project, whose total cost is estimated at $400 million-$500 million, is yet to be available.

"Response from the lenders has been overwhelming; however the larger part - the 80 per cent debt - is not there and you can only mobilise the contractor when you have the full financing."

The project lenders include the European Investment Bank (EIB), the African Development Bank (ADB), and the International Finance Corporation (IFC). The IPS Consortium proposed a financing plan with a total budget of $500 million on an 80-20 per cent debt-equity ratio.

The lenders have been evaluating the project since September last year and are presently evaluating the environmental impact assessment and the credit worthiness of the sponsor, the Ugandan government.

Energy Minister Daudi Migereko was optimistic about the project: "Salini, an Italian company, won the bid as the contractor but we have not signed a contract yet. I would not want to go into details of the project but everything is on course."

This is the second time that the Ugandan government is attempting to build a dam at Bujagali. The first effort, under which construction was supposed to have started in 2003, was mired in allegations of corruption and protests from environmentalists opposed to the destruction the dam would cause to the Bujagali Falls, a popular tourist destination for white-water rafters.

The construction was eventually suspended and the World Bank Group withheld its financing after corruption investigations by the US Justice Department and by the World Bank's Fraud and Corruption Unit. In 2003, AES Nile power - then the main developer, announced that it was pulling out of the project for economic reasons.

However, following the escalation of the power crisis in Uganda, in which a prolonged drought has cut hydropower production by more than half to about 120MW, against a peak-hour demand of 380MW, the government decided to rescue the Bujagali proposals.

In April 2005, the government selected a consortium of investors led by Industrial Promotion Services (Kenya) Ltd as the new sponsor for the Bujagali Hydropower Project.

Bujagali is seen as a medium-term effort to stem the power crisis that has knocked at least two percentage points off economic growth.

Currently, the government has been forced to resort to emergency thermal power, whose high tariffs have been passed on to consumers. Electricity tariffs went up by 79 per cent last year and experts have warned of further increases this year.

The government's new financing plan (2006-10) to meet the high cost of thermal power generation includes implementing a further tariff increase of 50 per cent in 2007.

The first phase of the Bujagali dam has received approval from the National Environment Management Authority.

"Since there are hardly any additional environmental impacts, we hope [the other phases] will also be cleared," Mr Banaabe said.

Earlier, government documents spelling out the plan for meeting Uganda's electricity needs dated April 2006, had warned that; "the implementation schedule for the project might be delayed if the approval of financing for the dam and power plan is linked to the completion of the EIA and Resettlement Action Plan for the transmission line."

The document points that while the required studies and other inputs to approve financing for the way leave and drawing out the Resettlement Plan for the transmission line should have been ready by June 2006, this will now be ready in May this year.

The Ugandan government late last year requested the financier to de-link the development process of the two projects for faster implementation, but this is yet to be done.

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